What is the difference between "fixed-rate" and "variable-rate" mortgages?

The distinction between fixed-rate and variable-rate mortgages is fundamentally based on how the interest rate is structured over time. A fixed-rate mortgage maintains a consistent interest rate throughout the life of the loan, which means that the borrower's monthly mortgage payments remain stable and predictable. This aspect makes fixed-rate mortgages appealing to many borrowers, particularly those who prefer certainty in their budgeting and long-term financial planning.

In contrast, a variable-rate mortgage, also known as an adjustable-rate mortgage, features an interest rate that can change at specified intervals based on market conditions or benchmarks (such as the prime rate). This fluctuation means that the borrower's monthly payments can increase or decrease over time, potentially making budgeting more challenging and introducing an element of risk.

The other options do not accurately describe the fundamental characteristics of fixed-rate and variable-rate mortgages, as they focus on limitations or misconceptions rather than the essential nature of how these mortgage types function.